Study says: the more you lean left, the less you know about economics

Great Debates
121

Let’s look at this again: The fastfood industry has evolved to to use as little labour as possible. If McD’s currently pays $5 and you say by law it has to be $10, that increased cost as to come from some where.

You have raised their operational costs, just as if you hike taxes, add a “fastfood fee” requiring additional licensing costs, or mandate insurance. That cost has to come from somewhere, either it increases prices, or decreases profits.

Most of the time it translates into a little of both, which is why some areas are more profitable to open a McD’s than others. But if State A sets the min wage at $10 and across the river State B sets it at $5, where do you think a new franchise will open? And if the restaurant in State A charges twice the cost as State B, where do you think people will go?

So two things happen: costs go up, decreasing demand; profits go down, decreasing the desire to open new franchises. People don’t open a McD’s because it’s fun, they do it to make money. If there isn’t money to be made, they won’t do it. If the restaurant isn’t making money it will be closed–hence unemployment. If a new franchise doesn’t open, current unemployment stays elevated.

That’s the restaurant industry. It’s also the short term view, it’s possible that with higher wages people working will have more disposable income and be able to go to McD’s, driving up profits, allowing more stores to open.

Now compare it to something where minimum wage is really significant: farming. Australia used to be a chief producer of coffee, but various labour laws made it more expensive to harvest the beans by hand. Meanwhile, countries like Brazil could do the same work for a fraction of the cost. Result was that the coffee industry dried up in Australia (causing unemployment). Now, 80 years later, a guy develops a mechanical harvester which is actually cheaper than manual labour, and Australia is back to growing coffee, but not employing nearly as many people. Australia has a considerably higher minimum wage than the US, so as a result McD’s costs more. But their unemployment is steady at an acceptable level.

The end result is that you cause a change in equilibrium, so there will be a shift, it is ridiculous to assume otherwise.

NONE of this is about good or bad, right or wrong, should we or shouldn’t we. It is about understanding the principles behind a policy decision. The next step in the real world is to ask, “are we okay with that happening?” Liberals will say yes, conservatives will say no.

But the fact remains, CHANGING minimum wage will cause a CHANGE in unemployment. It is okay to agree with that statement and STILL want to have/raise minimum wage.

122

Off the top of my head:
If you were going to starve unless you got a job, and that was the only one you could get.
If you really wanted to get into an industry, and the only way was by taking a job with extremely low pay.
If you really enjoy the job.
As a favour to somebody.
If you wanted to get to know the cute girl working behind the counter.
If you had to get a job as part of your parole agreement.
If you wanted some sort of job, so as not to have a blank on your CV.

Also, most people, believe it or not, do not calculate their marginal productivity before applying for a job. The fact that economics assumes they do is just one reason why economics is pretty much worthless when it comes to real life.
Most people do not calculate the utility they will receive from a product before buying it. They go “Mmmm - shiny. . do I have enough money for it? Sweet, sold!”
I’m sure you’ve heard this: “The hedonistic conception of man is that of a lightning calculator of pleasures and pains who oscillates like a homogeneous globule of desire of happiness under the impulse of stimuli that shift him about the area, but leave him intact. He has neither antecedent nor consequent. He is an isolated definitive human datum, in stable equilibrium except for the buffets of the impinging forces that displace him in one direction or another. Self-imposed in elemental space, he spins symmetrically about his own spiritual axis until the parallelogram of forces bears down upon him, whereupon he follows the line of the resultant. When the force of the impact is spent, he comes to rest, a self-contained globule of desire as before. Spiritually, the hedonistic man is not a prime mover. He is not the seat of a process of living, except in the sense that he is subject to a series of permutations enforced upon him by circumstances external and alien to him.” - Thomas Veblen

Just because an economics textbook says something, doesn’t make it true. The great economic qualifier is - “all else being equal” - well all else is pretty much never equal.

123

And this is what it all comes down to, which is why I used the “objects falling” example.

Newton’s laws are prefaced by, “in a vacuum…” Well, that’s pretty useless in the real world, I drop stuff all the time but never in a vacuum. So should we just discount the entire concept?

No, that would be fucking retarded, which is what is happening to a lot of these questions. People aren’t able to see past their own shortsighted ideology to answer a specific question. Each of those questions elicited a very specific response from liberals causing them to freak out and insist on debating and nitpicking each individual word. Which is what makes this a fascinating SOCIOLOGY paper, and not an economics paper.

So first you learn Newton’s Laws as they pertain to “in a vacuum.” Then you study fluid dynamics and learn how to apply buoyancy and wind resistant. Then you study mechanics of materials to understand how to apply friction between materials. And so on and so on.

But it all starts with being able to understand the fundamental principles that include “all things being equal.” Then you start to move out from there.

124

Unfortunately, your examples are worthless. If I decide to quit my job and take a low paying job elsewhere, I would be making my marginal product. Right now, it’s a lot higher doing what I am doing than if I were flipping burgers. But this is not the point. You explain why people would want to take crappy jobs, but honestly, that’s not the question nor does it particularly need explanation.

Right now, my job is more or less at the market rate. So the real question is, under what circumstances would I take the same job I have now for half the pay? Think on that one a little while.

Two of your examples come close.

This would be material not if the job were just lousy but if your wage were not set competitively. That’s the real question. If your choices were starvation or a wage forced down by, say, an uncompetitive rent-seeking corporation able to use its influence on the government, then I’d say you are probably being exploited. The fact that your job sucks and your pay is lousy would not by itself demonstrate this.

This is the best example in the bunch. Young people do work jobs whose pay is below their marginal products to break into their industries. This phenomenon has actually been studied quite a bit. But these young people, most of the time, do not choose between working as an associate in a Big 4 accounting firm and starvation.

And most people don’t do ballistic calculations when they catch an object thrown at them. Yet somehow, we manage. It’s miraculous. It’s equally miraculous that I have managed to do so well applying apparently worthless economics to real life.

You have a very dim view of “most people”. Do you work for a living? Do you ever have to create and price products for other people to consume?

If I were doing comparative statics here, I would say “all things being equal”. I’m not. So there.

125

Unless I am misunderstanding you, you are stating that the market pay is your market productivity; you then ask why you would take the same job for half the pay. Isn’t that just assuming what you are trying to prove?

If the market works like the free market economists tell us, you will be earning your marginal productivity. However, if it doesn’t, and the real world suggests that it doesn’t, there might not be any link between your wages and your marginal productivity.

126

I don’t quite understand your objection, but perhaps that is just because I am being unclear.

The basic assumption is that wage equals marginal product. This is never completely true because labor markets never completely clear and employees and employers are not necessarily price-takers. There appears to be a “natural” unemployment rate and the labor markets are not perfectly competitive.

This is a convenient assumption to illustrate concepts but needs to be relaxed if you are going to do serious work on labor markets. I don’t, and I do not know the formal literature on this stuff well enough to preach about it. I brought this up because I think this assumption can help us spot examples of exploitation even if the assumption itself needs some calibration. It forces us to look at whether the labor market clears, whether employers/employees have market power, and whether the market is competitive. I think that if your life stinks, your employer has significant market power, there are high barriers to entry, and enduring coercion plays a pretty significant role in your professional life, then you very well may be exploited and you probably aren’t being paid your marginal product. If you were to take a modal sweatshop worker out of a noncompetitive labor market with a monopsonic employer and drop him in the town next door that does have competitive labor markets, what happens to his wage, all things being equal. I must be crazy around here for thinking that he will probably do better, even if his job still sucks.

127

I don’t think you know what marginal product means, unless you believe that the labour market functions absolutely perfectly, and people *always *make their marginal product. Otherwise this paragraph is a little confusing. And my examples were assuming that the person was starting out unemployed, not moving from a highly paid job to a lower paid one.

You asked what for a situation where someone would take a job where they earned less than their marginal product. I gave several examples of when someone would take a job at less than their market value, thinking that that was what you meant. However, in case it wasn’t: The VAST, VAST majority of workers earn less than their marginal product.

Here’s a better question: Why would a firm hire someone and pay them more than their marginal product? And on average, do you think people earn more or less than their MP?

Tell me then, if all that matters is the cost of an object and its potential utility, why is advertising so effective? Why do people make impulse buys? Why do people spend more when they have a credit card than when they have cash? Cite

128

There are no (or very few) elected officials spouting left-wing nonsense on the same scale as, say, birther theories.

I will admit that the nonsense itself is equally bad on both sides. The current phenomenon is different, though.

129

I guess it depends how you guys are defining margincal product, but on the surface this appears to be, logically speaking, insane. It would mean the sum total of people within a given economy are earning less than they’re producing. Unless their money is being sent to Mars, the marginal product is being earned by someone, so you appear - again, at a glance - to be saying that total production is greater than total production. Would you care to clarify what you mean here?

130

If the firm can make more out of an extra worker’s input than it will cost to hire them, they hire them. Up to the point where they haven’t enough capital to make it worth hiring more. But everyone who was employed up to that point is producing more than they are being paid for.

This extra production is what makes profit for the firm, pays for materials, land etc, and pays the salary of the guy who hired them.

131

So is that exploitation of the worker?

132

No. Coupled with child labour, no unions, 18 hour days, no maternity leave, beatings for mistakes/being late, etc - then yes.

133

So that’s what you define as exploitation?

134

I certainly would.

135

No, it wasn’t meant as a definition.

Many other things could qualify as exploitation.

136

And they’ll charge you for that beating, too.

137

What does that have to do with the point I was making?

:confused:

138

Common sense says it, too, if you pay attention to what the left says about economics.

139

A cutting remark - and wit, as well. Good show!

140

And again, to put the question: how much of what we accept as standard academic economics is affected by the political system that it depends upon? Seems from here as though it has a number of certain and immutable principles which are invariably and universally correct, except under exceptional circumstances, which can always be readily explained.

Even more so when the political philsophy tries to seek validation from the very academic study it has warped to its own ends.

Now, of course, there is no possible way to measure this objectively. Maybe donations from conservatives, maybe funded think tanks have little measurable effect on academic economics. But even if that effect is only 10 percent, that is 10 percent that is and will continue to be consistently wrong, or, at the very least, consistently biased.

And so long as a President feels compelled to choose economic advisers who don’t cause Wall Street to get its silk panties in a bunch, then those advisers will be chosen from that pool of reliable conservative economists. So, if you are a determined and impartial student of factual science, you might go one way, if you are a dedicated careerist, you will go quite another. You must first examine the topography of your toast to determine the logistics of butter emplacement.

If someone suggests he will use academic economics to optimize a political and social agenda, to more correctly and efficiently realize that agenda, that’s one thing. But using academic economics as a means to validate a political and social agenda is horse pucky.